Business Strategy Analysis: Hershey's Case Study and EFE Matrix

This report presents a comprehensive analysis of Hershey's, a major player in the confectionery industry, focusing on its external environment and competitive positioning. The analysis employs Michael Porter's Five Forces framework to assess the bargaining power of suppliers and buyers, the threat of new entrants and substitutes, and the intensity of competitive rivalry. The report highlights the high bargaining power of suppliers and buyers, the significant threat of new entrants and substitutes, and the intense competition from rivals like Mars and Nestle. Furthermore, the report includes an EFE (External Factor Evaluation) matrix, which evaluates the opportunities and threats faced by Hershey's, assigning weights and ratings to each factor to determine the overall strategic position of the company. The EFE matrix reveals that Hershey's strategies are neither ineffective nor effective, suggesting a need for strategic improvements to capitalize on market opportunities and mitigate threats. The report concludes by emphasizing the need for Hershey's to refine its strategies to defend its market position and leverage opportunities within the dynamic chocolate industry. The report is supported by references to relevant academic and industry sources.

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Hershey’s Case:
Porter’s Five Forces Analysis
The extensive demands of chocolates around the world are quite profitable for the
chocolate manufacturing companies. It is reported that every year, almost 3 million tons of the
Cocoa beans are consumed by the larger number of population worldwide (Chocolate Class,
2014). Hershey’s is one of the renowned chocolate manufacturing brands that offer the high
quality and deliciously tasted chocolates to the consumers all across the world. However, it is
assumed that in next few years, there is the probability of the supply shortage in the global cocoa
industry. The challenge is quite significant for Hershey’s as well. The following study would
present the clear ideas about the external scenario in terms of defining the competitive landscape.
Michael Porter observed five main forces in the external business scenario that create the
significant impact on the profitability and creates the considerable scenario based on which the
firm develops their functionalities (Mierzwa & Zimmer, 2017). These five major forces are as
follows:
 Bargaining Power of the Suppliers (High)
It is noticed that majority of the companies belong to Confectioners industry deal with a
number of suppliers. Hershey’s is not an exception in such context. It is to be stated that the
margin of earned profitability can be decreased if the suppliers hold the dominant position. The
powerful suppliers in this sector have the ability to negotiate for the higher prices (Djekic et al.,
2016). This high level of supplier bargaining capacity may affect the profitability parameter of

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Hershey’s. The development of the more efficient supply chain with the multiple suppliers would
be beneficial for the company to avoid such situation.
 Bargaining Power of the Buyers (High)
Buyers usually tend to receive the better offerings by paying the minimum prices. Hershey’s
may feel pressure since the customer base is smaller and the demands of the buyers are quite
higher. It might affect the long term profitability of the company in a significant way. The
smaller yet powerful customer base may seek the increasing offers and discounts (Moorhead,
2016). Hershey’s needs to concentrate on building the larger customer base that would provide
them the opportunity to streamline the production process as well as the sales level.
 Threats of New Entrants (High)
The new entrants in the Confectioners are much inclined towards developing more
innovations and strategic movements to attract a larger amount of customers. The low costs,
value propositions, and reduction of the product prices may increase the challenges for Hershey’s
(Omsa, Abdullah & Jamali, 2017). It is thus necessary for the company to create more
innovations for safeguarding the competitive edge. In fact, investing more on the research and
development would also be helpful for the company to deal with such external challenges
imposed by the new entrants.
 Threats of Substitutes (High)
The industry profitability mainly suffers when a new service or products meets the
expectation or needs of the customers in a diverse way. In spite of the larger chocolate product
variations in Hershey’s, the company still faces the challenges from the substitute products like

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chewing gums and other foods and beverages (Patalinghug, 2016). The company would be able
to deal with such situation if it concentrates more on the service oriented aspects rather than just
the product oriented factors.
 Competitive Rivalry
It has been observed that Hershey’s faces the direct competition with Mars and Nestle,
which are the leading confectioners in the global market. The larger diversification segments of
Nestle have attracted a larger amount of customers. Therefore, it is noticeable that the
competitive rivalry of Hershey’s is quite higher. If Hershey’s could collaborate with one of the
competitors, it would have been quite helpful in increasing the market size.
EFA matrix
The EFA matrix is used to classify the market opportunities and threat faced by any
organization to identify the potential affect. The Matrix is used to develop a weighted score
which evaluate the current strategies for the organization (Moorhead, 2016). Therefore, this will
provide the strategic position of Hershey’s currently in the market. Initially a weight is assigned
to each of the opportunities and threats depending upon their level of importance. The next step
is identifying the resource capabilities of the organization to grab on to that opportunity or
mitigate the threat in the external market. The cumulative score is generated by multiplying the
weighted score to the ratings.
In this current scenario, Hershey’s opportunities and threats have been identified which
are then weighted and rated according to their importance. The total weighted score for the
scenario is 2.3 which is less than the average score of 2.5. A weighted score of less than 2.5
signifies that the strategies used by the organization are nether ineffective and effective. This

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means that Hershey’s will not be able to utilize the market opportunities effectively due to
loopholes in their strategies. Similarly, Hershey’s is not in a good position to deal with the
market threats.
Factor Weight Rating Extended
Opportunities
Product diversification and increasing product line 0.09 3 0.27
Hershey’s can expand in developing countries as it has a low
footprint in most of them 0.06
3
0.18
Get into mergers and acquisitions to expand the business 0.11 2 0.22
To develop products that are healthy having less sugar content such
as dark chocolate 0.15
3
0.45
Improvement in their distribution and supply chain network 0.1 2 0.2
Threats
The market in most of the countries is highly saturated 0.08 3 0.24
Consumers have become more health conscious and demands
healthier products 0.13
2
0.26
The shortage in availability of Cocoa due to high level of
consumption 0.15
1
0.15
The market in the chocolate industry is highly competitive 0.07 3 0.21
There is significant increase in the cost of the raw materials 0.06 2 0.12
Total 1.00 2.3
Table 1: EFE Matrix

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(Source: Created by Author)
Hershey’s will have to make improvement to their strategy to significantly if they have to
defend their position and capitalize on the opportunities in the market. The table below shows
that EFA matrix and the individual score assigned to each of them.